Correlation Between Park Ohio and Universal Music

Can any of the company-specific risk be diversified away by investing in both Park Ohio and Universal Music at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Park Ohio and Universal Music into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Park Ohio Holdings and Universal Music Group, you can compare the effects of market volatilities on Park Ohio and Universal Music and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Park Ohio with a short position of Universal Music. Check out your portfolio center. Please also check ongoing floating volatility patterns of Park Ohio and Universal Music.

Diversification Opportunities for Park Ohio and Universal Music

-0.6

Correlation Coefficient

Park Ohio  Universal Music

Excellent diversification

The 3 months correlation between Park and Universal is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Park Ohio Holdings and Universal Music Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Music Group and Park Ohio is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Park Ohio Holdings are associated (or correlated) with Universal Music. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Music Group has no effect on the direction of Park Ohio i.e., Park Ohio and Universal Music go up and down completely randomly.

Pair Corralation between Park Ohio and Universal Music

Given the investment horizon of 90 days Park Ohio Holdings is expected to under-perform the Universal Music. But the stock apears to be less risky and, when comparing its historical volatility, Park Ohio Holdings is 1.39 times less risky than Universal Music. The stock trades about -0.62 of its potential returns per unit of risk. The Universal Music Group is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  2,390  in Universal Music Group on September 23, 2024 and sell it today you would earn a total of  152.00  from holding Universal Music Group or generate 6.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Park Ohio Holdings  vs.  Universal Music Group

Park Ohio Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Park Ohio Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Universal Music Group

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Music Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Universal Music is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Park Ohio and Universal Music

The main advantage of trading using opposite Park Ohio and Universal Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Park Ohio position performs unexpectedly, Universal Music can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Universal Music will offset losses from the drop in Universal Music's long position.

The idea behind Park Ohio Holdings and Universal Music Group pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.